March 20, 2017

Although the Society of Settlement Planners (SSP) was founded in 2000, the term "settlement planner" is still viewed by many structured settlement stakeholders as an inflated synonym for "plaintiff broker". Current SSP President Joseph Tombs agrees.

"Until recently," Tombs stated in an S2KM interview, "that view was entirely accurate. A plaintiff broker would simply order new business cards with the new title ('Settlement Planner') proudly displayed. Today, however, that transition creates changes in expectations, applicable standards of care, and required levels of disclosure."

Just as significant, under Tombs' leadership, SSP has made a dramatic policy shift: "to pull back completely from structured settlement politics". Tombs quickly adds, however: "Our refusal to take a position should not be misunderstood to imply anything about our individual members." For example: "[t]he SSP has been a zealous advocate of the single-claimant QSF in the past and I doubt any of our members have changed their opinions on the subject. We are not asking our members to suppress or to modify their own beliefs."

The changes in SSP, as well as the growing maturation of settlement planning, were evident during SSP's recent 2017 Annual Conference which occurred March 1-3 in Las Vegas. Perhaps the most provocative statement of change, at least from a structured settlement perspective, was a panel discussion titled "Comprehensive Settlement Planning in a Post Structure-Centric World" featuring Tombs; Jack Meligan; Charly Schell; and Joseph DiGangi.

Each of these panelists has been a settlement planning leader and proponent for many years. Meligan and Schell are former SSP Presidents. DiGangi is the newly-elected SSP Vice-President. As panelists, each offered settlement planning "tips" including:

The SSP conference also included an informative panel discussion about the structured settlement secondary market titled "Bad Practices in the Secondary Market" featuring John Darer, Eddie Stone and moderated by Rhonda Bentzen. The presentation provided a detailed, professional critique, with examples, of false advertising by some primary market participants who sell products consisting of "re-cycled" or "derivative" structured settlement payment rights as "annuities" or "structured settlements" as well as the risks and dangers of such products.

Just as SSP as an association is transitioning, the relative role and importance of structured settlements (from SSP's perspective) is also changing - and this poses a challenge for NSSTA and the structured settlement industry generally. For examples:

Although most of the SSP members who produce structured settlements are also NSSTA members, according to Tombs, he also maintains that most SSP members, sponsors and seminar attendees do not sell structured settlement annuities.

SSP has developed a new set of "Practice Standards" which it introduced during its 2017 Annual Conference because, according to Tombs, "professionalism requires a set of common standards recognized by those calling themselves settlement planners as well as the consuming public."

Tombs also announced that a committee of the SSP Board will be "modernizing" SSP's existing "Standards of Professional Conduct" because this current ethical code is "too structured settlement centric".

Tombs, as well as other SSP members, believes that settlement planning represents a uniquely superior business model compared with traditional structured settlements. Most structured settlement annuity providers, according to Tombs, "[don't] understand the significance of settlement planning - or how it differs and/or relates to structured settlements."

From a plaintiff or plaintiff attorney perspective, Tombs characterizes settlement planners vs. structured settlement brokers as "unfair competition". "My experience has shown," Tombs states, "that whenever a plaintiff attorney sees and understands the settlement planning model, they will never again be satisfied with a structured settlement broker who only offers one product as a solution for a client's comprehensive needs."

From an historic and strategic perspective, Tombs' message, indeed the message of the SSP 2017 conference more generally, appeared to S2KM to echo and amplify Joseph DiGangi's presentation during the NSSTA 2009 Winter Meeting which DiGangi termed "a wake up call for the [structured settlement] industry". At that time (2009), DiGangi proposed a "consultant" model for NSSTA members, with multiple products and services, as an alternative to the "annuity broker" structured settlement business model.

Significantly, in 2009, DiGangi characterized structured settlement annuities as the "foundation product" for what DiGangi at that time termed "settlement consulting" - and settlement consulting as the new business model for structured settlement growth. For structured settlement consultants who lack the expertise, licensing or infrastructure to offer comprehensive solutions, DiGangi recommended teaming up with other professionals. DiGangi highlighted several transitional issues: licensing; conflicts of interest; collaboration models; and work process infrastructure.

Although NSSTA has not yet formerly embraced "settlement planning", NSSTA has formed a "Special Needs Attorney Task Force" and its 2017 Annual Educational Conference will feature an unprecedented (for NSSTA) number of special needs attorneys as speakers. Special needs attorneys play an increasingly important number of roles in personal injury settlement planning. Ringler, a founding NSSTA member and historically the largest structured settlement broker, recently re-branded itself as "Objective Settlement Advisors" and now claims to be "the largest settlement planning company in the nation."

Among several other interesting and educational SSP presentations (listed below), the following two related discussions were especially important for the future of SSP and settlement planning - again, from S2KM's perspective:

Hansen's presentation was notable for several reasons. First, he acknowledged that "settlement planning" remains an emerging profession that has not yet achieved professional status. Second, he identified four SSP-related steps to elevate settlement planning to professional status: 1) the current re-focus of SSP; 2) updating SSP's (structured-centric) Standards of Professional Conduct; 3) renewing and upgrading the RSP Designation program; 4) adopting and embracing the proposed SSP Practice Standards.

Hansen also reviewed the proposed new SSP Practice Standards, which address the following issues, and which the SSP Board of Directors' Practice Standards Committee has approved and sent to the SSP membership for their input and consideration before the SSP Board meets to discuss, modify and most likely approve the Practice Standards at its upcoming April meeting :

Tombs provided an RSP update which is newly organized and updated within a "Settlement Planning Education Center" (SPEC) website. SPEC, "an online education provider" for the settlement planning profession, is owned and operated by a public charity ("Friends of Settlement Recipients, Inc."), according to Tombs. An RSP Board, Tombs stated, owns and awards the RSP designation and approves, administers and promotes the program. Although the RSP is "independent" of the SSP, according to the SPEC website, SSP helped start RSP and supplied initial funding. The Missions of the RSP and the SSP are "congruent".

The SPEC website provides additional information about the RSP courses and the SPEC faculty and includes a detailed list of Frequently Asked Questions (with Answers) plus multiple "How-To" Videos. The RSP program is entirely online and self-paced. The total cost of the program will be "about $4750" per person. Additional contact information is available on the SPEC website.

March 24, 2016

Joint overlapping educational conferences hosted by the Society of Settlement Planners (SSP) and the Academy of Special Needs Planners (ASNP) March 9-12, 2016 in Tucson, Arizona provided S2KM and other attendees an opportunity to evaluate the current status of structured settlements within the larger, more complex personal injury settlement planning market. The SSP conference also transferred association leadership from Neil Johnson to Joe Tombs with Tombs promising to maintain Johnson's leadership direction and to "pull SSP back completely from structured settlement politics."

Among S2KM's conference conclusions: Many personal injury settlement planners characterize structured settlements as a strategic product, and recognize new marketing opportunities for structured settlements resulting from recent legislation such as the Affordable Care Act and the ABLE Act . The traditional and collective structured settlement industry should similarly embrace an important opportunity to grow its premium volume in this larger, more complex, more dynamic market than it has in the past by more effectively:

DISCLAIMERS: Because of overlapping conference schedules, S2KM was able to attend only three ASNP presentations but did receive and has reviewed all ASNP conference handouts. S2KM's Managing Director, Patrick Hindert, testified as an expert witness in the Mraz case concerning structured settlement and QSF issues on behalf of Adriana and Addison Mraz.

S2KM COMMENTS AND RECOMMENDATIONS

SSP Leadership

In his closing message as SSP President, Neil Johnson continued to emphasize several positive themes including industry unification and increasing collaboration between SSP and NSSTA. Among Johnson's proposed solutions for industry unity: 1) recognizing and accepting product diversity; 2) focusing on client and customer service; 3) identifying and pursuing permanent shared interests without necessarily agreeing on all issues; 4) engaging all perspectives to discuss industry problems and issues; 5) improving relationships among stakeholder groups; 6) promoting and practicing settlement planning not settlement selling.

Newly elected SSP President Joe Tombs promised to "maintain the direction of Neil Johnson's leadership and even accelerate it in every way possible." He identified the following "main themes" for SSP going forward: "to pull completely back from structured settlement “politics”, redouble our efforts at educating our members and promoting a Code of Ethics, and a membership push to quadruple our high water mark for number of members. We intend to actively encourage our members who sell structured settlement to join and to become actively engaged in NSSTA. We will continue to offer a hand of friendship and cooperation in their agenda although we will be decidedly apolitical. We will also make no attempt no manage our member’s opinions or their expressions of their opinions."

As for structured settlements, Tombs stated: "we intend to emphasize comprehensive settlement planning which will have the natural result of de-emphasizing structured settlement annuities to some extent as we move alternatives including trusts, taxable annuities, investment accounts, etc. closer to the forefront. We will be increasingly product-neutral and more advice-driven and client-need-focused in the future."Note: despite Tombs' assertion, and perhaps somewhat counter intuitively, multiple SSP conference speakers maintained that settlement trust sales, in particular, have actually increased their sales of structured settlement annuities.

Tombs also promised "to intensify [SSP's] efforts to stave off any further “infiltration" of our society by factoring companies and their employees. We will want to remain abreast of the goings on in that market as we have always attempted, but as a practical matter we are cutting off any new members or sponsors from that side of things."

Although NSSTA has made reports of all three surveys available to its members, and featured presentations about Part 1 and Part 2 at previous NSSTA educational conferences, NSSTA has not yet featured its Part 3 survey of plaintiff attorneys as an educational conference presentation. NSSTA has also prioritized "rejuvenating defense programs" as one of three preliminary "Growth Initiatives" with no equivalent current Growth Initiative focused specifically on plaintiff attorneys or personal injury settlement planning.

Less than 25% are likely to have a client sign a letter acknowledging that they were exposed to the opportunity to structure a portion of their settlement before opting for an all cash settlement.

Although 89% believe they "have adequate knowledge of structured settlements so that [they are] able to recognize when they would be in the best interest of an injured party...", only 28% said they suggest a structured settlement for cases involving Medicare set-asides (MSAs).

Only 26% have ever structured their fees.

Settlement Planning - A Special Needs Perspective

Most presentations by special needs attorneys at structured settlement conferences focus exclusively on special needs trusts. As one result, many structured settlement professionals fail to understand the broad and expanding scope of special needs planning - or how it impacts, overlaps with and differs from personal injury settlement planning. A similar misconception exists among special needs attorneys many of whom identify financial and insurance settlement planners exclusively with structured settlements. The title of the one joint SSP/ASNP presentation in Tucson ("Structured Settlements and Special Needs Trusts") re-enforced this misconception. Fortunately and positively, the actual presentation discussion, moderated my Jack Meligan and featuring Frank Johns and Joe Tombs, addressed a broader agenda.

Separately, both the ASNP and SSP conferences featured multiple presentations which captured the expanding expertise of their respective members. For structured settlement professionals, S2KM found ASNP's two "Pre-Session" presentations ("The ABCs of Public Benefits" by David Lillesand and "The ABCs of Special Needs and Settlement Planning" by Kevin Urbatsch and Michele Fuller) especially informative. Also recommended for structured settlement professionals seeking a more comprehensive understanding of special needs planning: Blaine Brockman's presentation ("Recent Trends in Special Needs Planning"),

Urbatsch and Fuller speak and write frequently about personal injury settlement planning and are recognized as leading national settlement planning experts among special needs attorneys. Their settlement planning presentations frequently discuss structured settlement "issues" - often with negative connotations and without rebuttal or explanations from structured settlement experts. What follows are structured settlement "issues" Urbatsch and Fuller identified in Tucson. In S2KM's experience: 1) many special needs attorneys agree with these issues; and 2) structured settlement proponents need to proactively respond to these issues - or risk continuing/increasing loss of potential annuity premium:

"Income stream is inflexible and cannot respond to emergency or major cash needs;

"High initial fees;

"Investment returns nearly always lower than what a diversified portolio would produce;

"Big ticket items, such as a home, cannot be easily acquired;

"Unscrupulous settlement planning brokers over-structuring because of high commission;

The Grillo case, which establishes potential legal liability for plaintiff attorneys who do not advise their clients about structured settlements, was the subject of an SSP conference presentation by Craig and Josephine (Grillo) Sullivan. The Sullivans shared the remarkable life story of their daughter, Christina, the Foundation she inspired and the Texas State Statutory amendment her case helped to enact.

For structured settlement brokers and settlement planners, the Grillo case provides a logical starting point for discussing structured settlements with plaintiff attorneys. As a point of comparison, consider response #5 above under "Marketing Feedback - NSSTA Survey of Plaintiff Attorneys."

Another important settlement planning "takeaway" from the Sullivans' SSP presentation: both Craig and Josephine emphasized the value of Christina's original life care plan which served as a care management "roadmap" throughout Christina's life accurately predicting future needs and developments which the Sullivans would not otherwise have anticipated.

This important observation, provided by the only care givers to appear as speakers at the combined SSP/ASNP conferences highlights an important settlement planning issue: Why do other settlement planning professionals ignorelife care planners - especially considering their strategic role defining "future needs" for personal injury damage analysis, as well as future expense allocations for Medicare set-asides and Affordable Care Act coverage? For examples:

As leading nurse life care planner Wendie Howland stated in this 2014 S2KM interview: "I have never been asked to review a settlement plan to see how well it matches my recommendations."

"Comprehensive" settlement plans S2KM has reviewed typically don't include any life care plan, or other document, providing a detailed "needs analysis".

With the exception of the National Alliance of Medicare Set-Aside Professionals (NAMSAP), a majority of whose members are life care planners, none of the many structured settlement or settlement planning conferences S2KM has attended during the past several years has offered specific presentations addressing the topic of "needs analysis" - or, with rare exceptions, featured a life care planner as presenter.

Key related issues: 1) what does "needs analysis" mean in the settlement planning context? Who is qualified, if not life care planners, to provide "needs analysis" for settlement planning? What is the relationship between a life care plan prepared for trial (damage analysis) and a life care plan for settlement planning? Who, besides a life care planner, is qualified to transpose one to the other?

The Mraz Case

The traditional objective and responsibility for plaintiff attorneys in personal injury cases has been to obtain the largest amount of compensation for their clients whether by judgment or settlement. By this standard, the law firm Lief, Cabraser, Heimann & Bernstein was notably successful in obtaining a $55 million verdict and subsequent $24 million settlement in 2009 against Chrysler in the Mraz wrongful death case.

Settlement planning, in general, and structured settlements, more specifically, however, prioritize an additional set of objectives and responsibilities for plaintiff attorneys. As a result, when the Lief, Cabraser law firm failed to obtain a structured settlement for Addison Mraz, the minor daughter of the deceased, after her mother, Adriana Mraz, allegedly requested Lief, Cabraser to obtain a structured settlement on Addison's behalf, Adriana brought a lawsuit alleging Lief, Cabraser attorneys breached the duty of care they owed to Addison.

On December 22, 2015, among other findings, a California trial court jury determined Lief, Cabraser attorneys did not breach the standard of care or any fiduciary duty they owed Addison Mraz. Nevertheless, unrelated to damages associated to the loss of the structured settlement, the jury awarded Addison Mraz $400,000 of fees and costs she previously paid to Lief, Cabraser. The case is currently on appeal.

Mark Wilson, the attorney who represented Adriana and Addison Mraz in their lawsuit against Lief, Cabraser, was a featured speaker at the SSP conference. Based upon the Marz case, and regardless of what occurs on appeal, Wilson highlighted the following structured settlement responsibilities as potential duties of care for plaintiff attorneys and recommended that structured settlement professionals and settlement planners utilize CLE programs to educate plaintiff attorneys about their potential liabilities. Plaintiff attorneys should:

Educate themselves about structured settlement issues including how to avoid constructive receipt as well as the appropriate utilization of QSFs and non-qualified assignments.

If and when necessary, know how to correct mistakes to preserve or re-establish their clients' structured settlement options.

Plaintiff Broker Diversification

The most successful plaintiff structured settlement brokers appear to be diversifying their products and services. It works, according to SSP speaker Anthony Prieto, "because it changes the conversation from a marketing perspective. There are a lot more people who want to talk to me about updates in MSP compliance or lien resolution than structured settlements. You see more cases when you offer other services. You become a problem solver as opposed to a problem identifier."

Consistent with the themes of "diversification" and "changing the conversation", John Darer made a convincing case for "transition expertise" as a critical settlement planning skill.

What potential professional liability issues accompany plaintiff broker product and service diversification? The SSP conference did not directly address this issue comprehensively.

Speaking about "ELNYandFactoringIndustry Lawsuits", attorney Edward Stone asserted that the "New Normal" (i.e. personal injury settlement planning) will not work if the core product (i.e. structured settlements) does not work. Focusing specifically on structured settlements, Stone asked whether a broker (plaintiff and/or defendant) owed any duty of care - and to whom? Also whether split commission arrangements changed the analysis? Based upon ELNY, he offered several related lessons for settlement planners.

Insurance law expert David Childers provided SSP conference attendees with a traditional analysis of standards of care and duties of care for insurance brokers, agents and producers under Arizona law.

CONCLUSION: Personal injury settlement planning is a large, complex, dynamic marketplace within which structured settlements historically has represented a strategic, if arguably under performing, product. The traditional structured settlement industry has heretofore avoided the educational analysis and strategic association relationships necessary to help its "New Generation" membership successfully transition to the "New Normal". It remains to be seen whether, when and how successfully future industry leadership will figure out how to put old wine in new bottles. Based upon this year's joint SSP/ASNP conference (and mixing metaphors), it appears the "New Normal" train is already leaving the station with a diversified cargo of blended products and services.

April 08, 2013

Since it was founded in 2001, the Society of Settlement Planners (SSP) has defined itself as an alternative to the National Structured Settlement Trade Association (NSSTA);
and defined its membership as more than plaintiff structured settlement
brokers. The resulting settlement planning business model features:

Structured
settlement annuities as a core funding product, but not as a singular
funding vehicle or product, for personal injury settlement plans; and

Settlement planners, as "claimant centric",
multi-professional, advisers who collaborate as a team and offer injury
victims and plaintiff attorneys complementary knowledge, skill sets and
work product.

To support and expand this settlement planning business model, SSP has developed and promoted:

Standards of Professional Conduct for Settlement Planners;

The Registry of Settlement Planners certification program; and

Annual educational conferences.

To improve and grow both the structured settlement and settlement planning markets, SSP President Charles Schellhas proposed the following strategy:

"Study and improve our business standards and practices.

"Develop "customer centric" solutions that help injury victims.

"Build collaborative business models by focusing on shared interests."

SSP recently announced the agenda for its 2013 Educational Conference which will take place May 5-7 in Las Vegas. Featured topics and speakers, organized by S2KM-suggested categories:

October 23, 2012

Celebrating the 10th Anniversary of the enactment of IRC 5891, the National Association of Settlement Purchasers (NASP)
hosted its 2012 Annual Conference last week in New Orleans.

The
conference featured an ambitious and successful educational program
highlighting prior NASP accomplishments and focusing on emerging issues
that impact both the primary and secondary structured settlement
markets. For the first time in NASP's history, conference attendance was
open to primary market participants.

This blog post offers S2KM's general observations and impressions of some of the broader structured settlement industry issues based upon NASP's 2012 conference.

Why Has Factoring Flourished?

Compared
with the primary structured settlement market, both NASP and the
secondary market appear to be flourishing. What explains this
paradoxical success?

The groundwork for secondary structured settlement market success began in 1997 when NASP launched a strategic lobbying initiative resulting in the enactment of IRC 5891 and NCOIL's Model State Structured Settlement Protection Act (Model Act).

Although neither legislative development would have been possible without support from the National Structured Settlement Trade Association (NSSTA), the lobbying agendas of the two associations were markedly different. Ultimately NASP prevailed on several critical issues including:

Denying annuity owners and providers the right to veto proposed transfers.

Eliminating maximum discount rates.

In addition to NASP's lobbying success, NASP's members have achieved considerable, and controversial, marketing success
utilizing aggressive television advertizing and sophisticated Internet
techniques. As one measure of this marketing success, the primary market
now claims the secondary market has "stolen the structured settlement brand".

Both the primary and the secondary structured settlement markets were devastated by the 2008 financial crisis which:

As
of the 2012 second calendar quarter, the secondary structured
settlement market appears to have fully recovered from the 2008
financial crisis. The primary market has not yet
recovered. Part of the reason is that interest rates, whether high or low, affect the primary and secondary structured settlement markets differently.

Other reasons, however, also help explain the growing success of the secondary structured settlement market.

Structured
settlement transfers improve the structured settlement product by
addressing a critical need for many structured settlement recipients - a
liquidity need that was not properly addressed in the original
settlement plan or, alternatively, resulted from unanticipated
developments.

Having failed politically to end structured settlement factoring, NSSTA, and many annuity providers, have adopted alternative strategies which appear to be misguided attempts to create obstacles and impede the growth of the secondary structured settlement market.

NSSTA's 2006 bylaw amendments represent one such example. As NSSTA explained to its members: "because
[the secondary market] activities [prohibited by the amendments] are
inconsistent with the membership qualifications, engaging in those
activities can lead to suspension or expulsion from membership and to denial of new membership applications." (emphasis added).

The increasing "administrative fees" annuity providers charge factoring companies, either as a condition to avoid "opposed transfers" or to allow transfers of life contingent payment rights, represents another example. Ultimately, the structured settlementrecipients who transfer payment rights pay for those administrative fees which, for some annuity providers, now represent a new profit center.

How do these types of actions help the structured settlement customer or improve the structured settlement industry?

Both NSSTA and NASP, and their members, share a common existential interest
in IRC 104(a)(2) and 130. Both NSSTA and NASP recognize the anticipated
re-writing of the U.S. tax code expected to begin following the 2012
Presidential election represents a threat to those tax sections.

Arguably,
the existence of IRC 5891, which not only links to IRC 104(a)(2) and
130, but also to the 48 state structured settlement protection
statutes, has both expanded and strengthened the U.S. structured settlement legislative framework.

Having collaborated to help enact IRC 5891 and the NCOIL Model Act,
shouldn't NSSTA and NASP also collaborate to defend and maintain IRC
104(a)(2) and 130 - and to identify additional shared interests for structured settlement industry improvement and growth?

Improving Industry Education

In his opening comments at the NASP 2012 conference, outgoing NASP President Matthew Bracy challenged attendees to make the structured settlement transfer business better: "better
in the marketplace, better in the courts, and above all better for the
customers who so need the service this industry provides."

One way NASP "walks the walk" of secondary market improvement is by inviting its critics to speak at NASP conferences. NASP challenges these critics not only to address secondary market problems but also to recommend improvements.

Critics
who have spoken at past NASP conferences include: Jack Meligan,
Stephen Harris, Peter Vodola, John Darer, and Richard Risk. Other
critics, including NSSTA leaders, have been invited but have declined to
participate.

Jan Schlichtmann, keynote speaker for the 2012 NASP conference, began by stating: "I don't like your advertizing". He then praised NASP for inviting and encouraging criticism to better itself and the secondary structured settlement market.

Because
of the importance of issues such as qualified settlement funds (QSFs)
and the secondary market for the future of structured settlements, NSSTA
members increasingly must rely upon non-NSSTA educational programs and educational resources to interact with the people and ideas challenging and changing the structured settlement industry.

Fortunately for NSSTA members, as well as members of the Society of Settlement Planners (SSP), NASP has now opened an entirely new educational forum to challenge and expand their understanding of structured settlements.

October 01, 2012

Writing publicly about conferences you have not personally attended
can be dangerous and unprofessional. So also is quoting, and/or
misquoting, portions of copyrighted presentations out of context -
especially when you rely on unnamed sources for your material.

Professional protocols, however, have not prevented John Darer (in this blog post) from mischaracterizing my presentation at the QSF Symposium sponsored by Evolve Bank and Trust on September 27-28, 2012.

In his blog post, Darer falsely accuses me of highlighting the following "points" related to "[p]romises to pay periodic payments acquired in the secondary market":

The "points" John attributes to me did appear in the larger context of two copyrighted slides I presented and discussed at the QSF Symposium. They did not, however, apply to "promises to pay periodic payments acquired in the structured settlement market" - whatever that means. Nor did they apply generally to "structured settlement payment rights" purchased in the secondary market.

Instead, the "points"
John has lifted (out of context and without proper attribution or
permission) from two copyrighted slides refer to one specific type of
transaction that might indirectly utilize structured
settlement payment rights. And the purpose of the discussion, as I
stated during my presentation, was to highlight issues that need to be
addressed before this specific type of transaction will satisfy
marketplace due diligence.

Of
course, John actually would have had to attend the QSF Symposium - and
to have heard my presentation - to understand these nuances.

Concerning this same presentation John did not actually attend, he also writes: "This
represents one of the few occasions in over 8 years that Hindert has
highlighted anything substantially negative associated with structured
settlement transfers or investing in structured settlement payment
rights."

Having previously addressed this canard about S2KM's biased reporting, I refer readers, including John, to this blog post for S2KM's response.

August 07, 2012

In an August 2, 2012 blog post titled "Uniform Fiduciary Standards Only Half the Story", John Darer offers the following critique of this earlier S2KM blog post: "It's a pity that an otherwise well written blog post by Patrick Hindert about Uniform Fiduciary Standards, unexplainably omits standards for the secondary market."

S2KM's blog post addressed the following issue: "What impact will a new uniform fiduciary standard, being developed by the Securities and Exchange Commission (SEC) as one result of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), have upon existing structured settlement and settlement planning business models and practices?"

Without any discussion of the secondary market, S2KM's blog post also highlighted certain traditional primary market structured settlement business practices that fail to meet any fiduciary standard:

By "setting aside the good players", however, John's blog post spotlights existing bad business practices but does not identify or address secondary structured settlement market business standards. What are those secondary market standards - and how do (or should) these standards impact the primary market?

Looking specifically at the "uniform fiduciary standard" (the subject of the S2KM blog post in question), the related secondary market standard is the "best interest" test. There are three sources that establish and/or address this secondary market standard: 1) IRC section 5891; 2) the state structured settlement protection statutes; and 3) judicial interpretations of the "best interest" standard.

IRC Section 5891

IRC section 5891 imposes a 40 percent excise tax on any person who acquires structured settlement payment rights in a factoring transaction. The excise tax, however, does not apply if the transfer is approved in advance in a "qualified order" issued under an applicable state statute by an applicable state court.

IRC section 5891(b)(2) defines a qualified order as “a final order, judgment or decree” that satisfies two requirements: a qualified order must find the transfer of the structured settlement payment rights:

does not contravene:

Any Federal or State statute or

The order of any court or responsible administrative authority; and

Is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.

State Structured Settlement Protection Acts

Forty-seven states have enacted some form of structured settlement protection act. While the various state SSPAs lack uniformity, most adopt the same terminology and share the same basic legislative scheme as the Model SSPA. Echoing IRC section 5891, the state SSPAs provide that structured settlement payment rights transfers are not effective unless they receive advance court approval. Under each of the state SSPAs, key terms are defined, procedures for obtaining court approval are spelled out, and required notices, disclosures and findings are established.

Although all of the state SSPAs incorporate the "best interest" test, the California statute is the only SSPA that defines best interest. Section 10139.5 (b) of the California Insurance Code lists 15 factors that judges should consider "[w]hen determining whether the proposed transfer should be approved, including whether the transfer is fair, reasonable, and in the payee’s best interest, taking into account the welfare and support of the payee’s dependents" including:

“(1) The reasonable preference and desire of the payee to complete the proposed transaction, taking into account the payee’s age, mental capacity, legal knowledge, and apparent maturity level"; and

“(15) Any other factors or facts that the payee, the transferee, or any other interested party calls to the attention of the reviewing court or that the court determines should be considered in reviewing the transfer.”

Judicial Interpretations

In the absence of a state SSPA "best interest" standard, state courts have applied differing determination standards and have been reluctant to provide their own definitions. For example, here is a statement from a 2003 New York trial court opinion (In re Petition of Settlement Capital Corp.):

"Although the [New York] statute does not define the best interests of the Payee, developing case law and the intent of the statute suggest the Court should consider: (1) the Payee’s age, mental capacity, physical capacity, maturity level, independent income, and ability to support dependents; (2) purpose of the intended use of the funds; (3) potential need for future medical treatment; (4) the financial acumen of the Payee; (5) whether the Payee is in a hardship situation to the extent that he or she is in “dire straits”; (6) the ability of the payee to appreciate financial consequences based on independent legal and financial advice; [and] (7) the timing of the application."

Conclusion

What relevance, if any, therefore, does the secondary structured settlement market "best interest" standard have as primary market stakeholders contemplate the potential impact of a uniform fiduciary standard under the Dodd-Frank legislation?

Neither IRC 5891 nor any of state SSPAs apply their "best interest" test to primary market structured settlement sales. Only four of the state SSPAs (New York, Florida, Massachusetts and Minnesota) establish any primary market sales standards, each requiring certain mandatory written disclosures.

The secondary market "best interest" test, however, does raise important issues for the primary structured settlement markets. Most importantly, If structured settlement transfers are required to be in "the best interest of the payee, taking into account the welfare and support of the payee's dependents", why shouldn't a "best interest" test or fiduciary standard apply to the original structured settlement sale?

Thank you, John Darer, for pointing out the importance of this issue.

For additional discussion and analysis of secondary market business practices and the "best interest" test, see:

November 18, 2011

S2KM has received both positive and negative private feedback about S2KM's coverage of the National Association of Settlement Purchasers (NASP) 2011 Annual Meeting. Although S2KM welcomes any feedback, private or public, negative feedback generally provides greater focus and incentive for afterthoughts.

Among the private criticisms S2KM has received:

S2KM is biased toward (or has an affinity for) the secondary market at the expense of the primary market.

S2KM should be more of a positive voice for change and not a muckraker.

Bias Toward the Secondary Market

S2KM believes that IRC 5891 and the state protection statutes have radically changed and improved both the structured settlement product and the structured settlement market. To paraphrase NASP President Matt Bracy: structured settlement recipients, in compliance with federal and state laws, now have the right to sell their asset (payment rights) provided a state judge approves the sale in advance as being in the "best interest" of the transferor/payee taking into account the welfare and support of the payee's dependents. Instead of the "grey" secondary structured market that existed from 1986 to 2000, the secondary market is now regulated by state judges and the Internal Revenue Service with substantial penalties for transfer companies who do not comply with federal and state statutes.

Many primary market participants will disagree with portions of the above paragraph. They do not view structured settlements transfers either as a product improvement or as a recipient's "right" however that right may be qualified by statute. In S2KM's opinion, the primary market's general attitude toward and perspective of the secondary market since 2001 represent a serious strategic mistake that has caused considerable harm to the primary structured settlement market. Instead of improving their own products by adding commutation or transfer features, and re-learning how to sell their product in a statutorily re-defined market, the primary market continues to criticize and shun the secondary market.

By comparison, NASP regularly invites and welcomes critics to speak at its educational conferences. These critics have included blogger John Darer, two current co-chairpersons of the NSSTA Legal Committee Peter Vodola and Stephen Harris, and current SSP President Jack Meligan, as well as judges from states where structured settlement transfers are viewed most negatively. Among NASP presentations by S2KM author Patrick Hindert (Hindert), see "How the Primary Market Views Factoring".

Criticizing Business Conduct

Beginning in 2004, S2KM has reported and discussed both primary and secondary structured settlement market business practices and business models. For compilations of S2KM's reporting about secondary market business practices (good and bad), see the Secondary Market page on the structured settlement wiki. For detailed information about pre-2001 secondary market business practices and issues, see section 16.02[2] of "Structured Settlements and Periodic Payment Judgments" (S2P2J) of which Hindert is a co-author.

For S2KM reporting and commentary about primary market business standards and practices, see also the structured settlement wiki:

Wikipedia defines the contemporary use of the term "muckraker" to mean "a journalist who writes in the adversarial or alternative tradition or a non-journalist whose purpose in publication is to advocate reform and change." When S2KM began publishing in 2004, social media (including blogs, wikis and podcasts) represented an "alternative" to traditional print media and educational conferences. Social media provides an opportunity for unpopular or minority ideas and viewpoints to gain an audience not otherwise available. Unfortunately, social media also has a dark side which can include personal attacks and bullying.

In advocating for improved structured settlement business practices and business models, S2KM has attempted (with a few exceptions which S2KM regrets), to follow the lessons taught in "Getting to Yes" which at one time represented a guidebook of sorts for the primary structured settlement market. Perhaps the "Getting to Yes" method can still be useful to help a divided structured settlement industry improve and grow:

Separate the people from the problem.

Focus on interests not positions.

Invent options for mutual gain.

Insist on using objective criteria.

Without more strategic conversations that include all structured settlement stakeholders and perspectives, the structured settlement industry will never achieve its full potential. To the extent possible, S2KM intends to encourage and to be part of those strategic industry conversations. Some of S2KM's preliminary contributions appear on the following pages of the structured settlement wiki:

August 03, 2011

What is the New York Liquidation Bureau (NYLB) and what role will the NYLB play if and when Executive Life Insurance Company of New York (ELNY) is liquidated?

According to its Mission Statement: NYLB "acts for the Superintendent of Insurance as the court appointed fiduciary and Receiver of impaired and insolvent insurance companies, to maximize assets and resolve liabilities, return rehabilitated companies to the marketplace or distribute the proceeds of the company in a timely manner to creditors."

NYLB is "a unique entity. Receiving no funding from taxpayers, it carries out the responsibilities of the Superintendent of Insurance as Receiver, and acts on his behalf in the discharging of his statutorily defined duties to protect the interests of the policyholders and creditors of insurance companies that have been declared impaired or insolvent.

"The NYLB has performed this function since 1909, when the New York State Legislature passed the law mandating that the Superintendent assume the separate responsibility of Receiver. In the case of each insurance company in receivership, the Superintendent as Receiver is appointed by the New York State Supreme Court. The Court approves all of the actions of the Superintendent, and by extension those of the NYLB."

The New York Court of Appeals held in 2007 in the case Dinallo v. DiNapoli that, in his capacity as liquidator of insurance companies, the superintendent of insurance is not a state officer and that the NYLB, acting as the superintendent/liquidator's agent, is not a state agency and therefore is not subject to state audit.

The Court of Appeals reasoned: "[t]he Bureau does not perform a governmental or proprietary function 'for the state', but rather runs the day-to-day operations of private businesses in liquidation pursuant to Supreme Court order. The Bureau is not part of the Insurance Department's budget, operates without the benefit of state funds, maintains its own errors and omissions coverage, and is represented by its own private counsel, not the Attorney General, as is normally the case when a state agency is sued. Thus, the Bureau is not a 'state agency' within the ambit of State Finance Law § 8(2-b)(a)."

The Court of Appeals added: "When acting as liquidator of a distressed insurer, the Superintendent operates as a statutory receiver who stands in the shoes of a private entity and 'takes immediate possession and control of the assets and proceeds to a liquidation of its affairs' .... Indeed, the Superintendent as liquidator occupies a legal status that is 'separate and distinct from the superintendent of insurance as the public official charged with regulating the insurance industry generally' .... Thus, while the Superintendent's role as liquidator is judicial and private, his role as regulator and supervisor is administrative and public. Consequently, the Superintendent as liquidator is not a state officer but rather one who acts on behalf of a private entity."

New York attorney Peter Bickford has written a series of blog posts (titled "Insolvency Process in New York") which are highly critical of the NYLB. According to Bickford, the NYLB had (as of 2007) more than 450 employees ("most of whom are protected by union contracts") and an annual budget of more than $100 million.

Bickford's primary complaint about the NYLB is that the "receivership process in New York lacks meaningful transparency and accountability." Although the NYLB has promoted "a new era of openness and accountability" (including external audits beginning in 2006), Bickford maintains the opposite is true. As a primary example, Bickford highlights the NYLB's "recent unprecedented use of the courts to further insulate itself from outside scrutiny and accountability". As evidence, Bickford points to the following provision which he states now appears in liquidation and rehabilitation orders issued by New York courts:

“The Superintendent as [rehabilitator] [liquidator] of [the company], his successors in office and their agents and employees are relieved of any liability or cause of action of any nature against them for any action taken by any one or more of them when acting in accordance with this Order and/or in the performance of their powers and duties pursuant to Article 74 of the New York Insurance Law."

By adding this paragraph to court orders of liquidation or rehabilitation, Bickford claims "the [NYLB] seeks to obtain immunity without any basis in the law", and for which he maintains there is no precedent. This immunity, according to Bickford, "bestows absolute immunity – including for gross negligence or intentional acts committed while acting as liquidator or rehabilitator of an estate."

How do Bickford's criticisms of the NYLB square with the rehabilitation, and anticipated liquidation, of ELNY?

Without any public explanation, the much ballyhooed 2007 announcement of "an agreement in principle", whereby various insurers and guarantee associations apparently had agreed to pay $650 to $750 million to fund future ELNY payments (which is not publicly available), has never materialized.

The participants in the agreement, which apparently included Allianz, Fireman’s Fund, Allstate, State Farm and Travelers among other liability insurers who previously purchased ELNY annuities to fund structured settlements, have signed confidentiality agreements with the NYLB.

In a separate blog post, Bickford quotes from a Business Insurance article reporting statements by Mark Peters, who then served as the NYLB Superintendent, about the ELNY 2007 agreement in principle:

“The contributions will be enough to offset the $2 billion deficit that ELNY is predicted to face in 12 to 15 years, regulators say. The deficit results largely from an overly optimistic assumption in ELNY’s 1992 rehabilitation plan that the estate would earn 10% annually on its invested assets, Mr. Peters said. The actual return was between 7% and 8%. The Liquidation Bureau is now assuming a future annual return of just over 6%, he said. Most of ELNY’s contracts will run off within 35 years, with the last contract expiring in about 70 years, he said.”

"The 1992 plan of rehabilitation does not include interest rate assumptions."

"The 1992 plan of rehabilitation specifically stated that that the cash flows from investments 'are projected to be sufficient to cover current [covered annuity] payouts for at least ten (10) years.'”

"So if it is not the interest rate assumptions causing the purported deficit, what is causing it?"

ELNY sold an estimated 8,000 structured settlement annuities prior to entering rehabilitation. To date, all related ELNY structured settlement payments have been paid in full. The most recent financial statements for ELNY (as of December 31. 2010) show assets of $905,945,200 compared with liabilities of $2,474,317,342 resulting in a negative surplus of $1,568,372,142. New York Governor Andrew Cuomo recently appointedJonathan Bing to serve as Special Deputy Superintendent of the NYLB.

On June 23, 2011 the Superintendent of the New York Insurance Department filed a motion to postpone the previous deadline for filing a proposed order and plan of liquidation for ELNY with the New York State Supreme Court of Nassau County from July 1, 2011 to August 10, 2011 "in order to present a comprehensive and consensual proposed Plan of Liquidation that maximizes the potential benefits for ELNY's structured settlement and other annuitants."

Featuring industry leaders, commentators and professional association conferences, S2KM has attempted to highlight how legal and technology changes are redefining the traditional (pre-2001) structured settlement market including structured settlement public policy as well as structured settlement business standards, business practices and business models.

From S2KM's perspective, the following categories, people and developments defined the structured settlement and special needs settlement planning industries in 2010:

As a general observation, all of these conferences were valuable and complementary. For S2KM's 2010 (plus historical) conference reports, see S2KM's structured settlement wiki.

SSP, NASP and NAMSAP deserve special recognition for their 2010 strategic educational discussions featuring industry leaders, commentators and critics who offered alternative perspectives for improving and growing the structured settlement and special needs settlement planning markets.

By comparison, NSSTA remains reluctant to openly discuss strategic industry issues or to include alternative perspectives in their educational programs. More positively, NSSTA representatives and members increasingly attend and speak at non-NSSTA structured settlement and special needs settlement planning conferences.

NAELA's educational conferences are noteworthy because they regularly feature sections or entire programs titled "unprograms". NAELA's unprograms are moderated group discussions about specific topics. NAELA's 2010 Special Needs Summit included six separate one hour unprograms with a concluding unprogram wrap-up session. One example of a 2010 NAELA unprogram was titled "Collaboration Opportunities for Special Needs Attorneys and Financial Planners".

Industry leaders

NSSTA promoted Eric Vaughn, who previously served as NSSTA's lobbyist, to replace Joseph Ricci as NSSTA's new Executive Director effective July 1, 2010. Peter Arnold, previously NSSTA's Marketing Director, was similarly promoted to serve as NSSTA's Associate Executive Director. NSSTA's Board of Directors elected Michael Kelly as its 2010 President and Dan Finn as its President-elect. NSSTA honored Congressman Peter Stark during its Annual Meeting as its 2010 Legislator of the Year. NSSTA also gave special recognition to Karen Meyers and Joseph Bornstein for their contributions to NSSTA's CSSC and NSSTAPAC programs respectively..

SSP elected Jason Lazarus as its President for 2010-11 and Charles Schell as Vice President. SSP honored Richard Risk with the designation of "life member" for his contributions to SSP and the settlement planning industry. Joseph Tombs continues as Director of SSP's RSP certification program.

NASP named Matthew Bracy as its new President succeeding Robin Shapiro. Earl Nesbitt continues as NASP's Executive Director.

NAMSAP elected Michael Westcott as its President.

NAELA honored Dick Traum as the first recipient of NAELA's Special Needs Leadership Award. Traum is the founder and CEO of Achilles International, a non-profit organization providing community support for athletes with disabilities with members in more than 70 countries.

Amy Palmiero-Winters, ultra-marathoner and lower-leg amputee, was named during 2010 as the winner of the 2009 James E. Sullivan Award given annually to the top amateur athlete in the United States.

Industry commentators

For the past several years, Robert Wood has been the preeminent tax commentator and author for the structured settlement and settlement planning industries. Wood's publications appear on the Wood & Porter website.

During 2010, Jeremy Babener emerged as an important new structured settlement tax commentator and author specializing in public policy and proposing an expanded structured settlement tax subsidy. In addition to authoring several structured settlement articles for tax and legal journals, Babener participated as a featured speaker at both the SSP and NASP 2010 Annual Meetings and authored two blog posts for S2KM during 2010. Babener discussed his structured settlement writing (accessible on S2KM's structured settlement public policy wiki and Babener's Tax Structuring website) in this 2010 S2KM interview.

An increasing number of structured settlement and special needs settlement planning professionals published blogs during 2010 joining industry blogging pioneers such as John Darer, Mark Wahlstrom, Matthew Bracy and Jack Meligan.

Incisive Media published two new updates (Release 47 and Release 48) for "Structured Settlements and Periodic Payment Judgments" during 2010.

Dodd-Frank re-writes federal banking law and creates a new Bureau of Consumer Financial Protection. A key question, as yet unanswered, is whether the sale and/or purchase of structured settlement annuities constitutes a "financial product or service" under Dodd-Frank requiring regulatory supervision by the Bureau.

Regulations

The United States Department of Treasury held a public hearing on February 23, 2010 focused on proposed new regulations for Internal Revenue Code section 104(a)(2). The proposed regulations, if enacted, would:

Eliminate the requirement that damages be based on “tort or tort type rights” in order to qualify for the section 104(a)(2) tax exclusion, and

Incorporate 1996 legislation requiring that personal injuries and sickness damages be “physical” in order to qualify for the section 104(a)(2) tax exclusion.

A subsequent S2KM interview featured John McCullough and Richard Risk, two of the structured settlement industry members who spoke at the hearing.

The Centers for Medicare and Medicaid Services (CMS) continued to issue administrative guidance during 2010 for enforcement of the Medicare Secondary Payer (MSP) Act of 1980 and the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) reporting requirements for insurers. Featured discussions during the NAMSAP 2010 Annual meeting highlighted:

The increasing importance and complexity of the MSP statute for all personal injury stakeholders;

The need for these personal injury stakeholders (and their professional associations) to cooperate politically and educationally;

The evolving business models, claim management strategies and professional skill sets which are now emerging to address these challenges.

Case law

The Spencer v. Hartford class action lawsuit which settled in 2010 represents one of the most important legal developments in the history of the structured settlement industry.

Hartford's gross settlement payment of $72.5 million represents 4.5% of total premium dollars Hartford used to purchase structured settlement annuities for class members from January 1, 1997 to June 7, 2010.

Among the plaintiffs allegations:

Hartford and its attorneys, brokers and agents violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed common law fraud in structuring its settlements.

Hartford's structured settlements were priced so Hartford retained 15% of the value of the structured settlements.

Hartford and its attorneys, brokers and agents misrepresented structured settlements including explicit or implicit reference to:

The "cost" of the annuity or structured settlement or portion of the settlement being structured; and/or

The "value" of the annuity or structured settlement or portion of the settlement being structured.

Hartford, which stopped writing new structured settlement business in 2009, denied the allegations.

Technology

Despite the accelerating technology advances revolutionizing society generally, the structured settlement and special needs settlement planning industries have been slow to study and incorporate these advances into their educational programs and business models.

The best industry-sponsored technology education programs during 2010 were offered by Mark Miller during a NAELA webinar and Harry Margolis at the ASNP 2010 Annual Meeting. Both presentations provided introductory overviews of web 2.0 and including recommendations for integrating specific social networking tools into special needs legal practices.

NSSTA initiated a NSSTA blog during 2010 and offered an educational program about Internet marketing during its 2010 Fall Education program.

Public policy

Both SSP and NASP featured specific discussions and presentations about structured settlement public policy during their 2010 Annual Meetings. The discussions included industry commentators representing diverse viewpoints and priorities.

In a 2010 Boston College Law Review article, professors Gregg Polsky and Brant Hellwig challenged the application of any structured settlement tax benefit for deferring attorney fees or payments to non-physically injured tort plaintiffs under general common law tax principles.

Business standards and practices

The Spencer v. Hartford case raises many issues about structured settlement business standards and practices which require greater education and analysis if the primary market expects to improve and grow. For example;

Is the primary structured settlement market capable of self-regulation?

As an additional requirement, or as an alternative, why haven't plaintiff attorneys and plaintiff consultants insisted upon a claimant's written informed consent before entering into a structured settlement?

"Cash now" advertising represents one of the most highly criticized secondary market business practices. Although this practice continues to exist, NASP took an important educational step during its 2010 Annual Meeting by highlighting this issue and inviting secondary market critics to participate in the discussion.

Business models

While other segments of, and products within, the special needs settlement planning market have expanded and improved in recent years, the structured settlement primary market in general has stagnated and retrenched.

During 2010, however, representatives of the primary structured settlement market increasingly recognized their interdependency, and interacted, with other settlement planning professionals and professional associations such as special needs attorneys, life care planners, Medicare set-aside professionals and secondary structured settlement market participants.

Future industry improvement and growth will require even greater appreciation and identification of shared interests as well as expanded implementation of shared political strategies, educational programs and business models.

November 09, 2010

These polar-opposite imperatives for the structured settlement industry represent S2KM's two strategic lenses for reporting and analyzing simultaneous educational programs this week in Las Vegas sponsored by the National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP).

S2KM's Managing Director, Patrick Hindert, will attend portions of the NSSTA conference (as a NSSTA member and former NSSTA President) and participate in NASP's Friday morning "Industry Analysis" program (as a moderator and speaker). S2KM's continued reporting and commentary about the NSSTA and NASP conferences will appear on this S2KM blog ("Beyond Structured Settlements") as well as S2KM's structured settlement wiki.

NSSTA's strategic mandate is to "protect and preserve".

Question: what exactly does NSSTA want to "protect and preserve"?

The simple answer: Internal Revenue Code sections 104(a) and 130.

More strategically, what NSSTA wants to "protect and preserve" (to the extent possible) are business models and business practices ("good old days") that existed prior to:

One result of NSSTA's "protect and preserve" mandate has been a "dumbing down" of NSSTA's educational programs - at least from a strategic perspective. Some of NSSTA's technical discussions are excellent. For example, NSSTA's legal committee has re-emerged as a leading structured settlement educational resource. And NSSTA's CSSC certification program continues to receive positive reviews despite low attendance and the lack of a continuing education (CLE) requirement.

NSSTA's primary educational problem is the application of its narrow and political strategic framework ("protect and preserve" as opposed to "improve and grow") for its educational programs. For example, NSSTA never invites knowledge leaders from NASP or SSP (or anyone critical of NSSTA political objectives) to participate in NSSTA's educational programs. For another related example, NSSTA educational programs never provide strategic discussions ("Industry Analysis") with alternative perspectives.

Bottom line: NSSTA's educational programs have fallen behind NASP and SSP who now represent the benchmarks for structured settlement educational excellence. For further S2KM reporting about NSSTA's educational demise, see: S2KM's analysis of NSSTA's 2009 educational program. Unfortunately, NSSTA's announced 2010 educational program looks like "the same old, same old" - at least from S2KM's strategic perspective.

By comparison with NSSTA, NASP will devote three hours of its 2010 educational program this week in Las Vegas specifically to "Structured Settlement Industry Analysis". This portion of the NASP program is subtitled: "How to Improve and Grow the Structured Settlement Industry".